The cross-impact between financial markets, Covid-19 pandemic, and economic sanctions: The case of Iran

Abstract

The main financial markets in the Iranian Economy include the stock exchange, foreign exchange, oil, and gold markets. The sharp fluctuations in these markets, especially those caused by the severe sanctions imposed on Iran in May 2018, and the pandemic outbreak of Covid-19 have led to more confusion and uncertainty among investors. One of the effective approaches to examine such unstable conditions is to study the co-movement(s) between markets to identify the leading variable(s). Thus, in the present study, Wavelet Coherence Analysis was applied to examine the co-movements between markets in a time period from September 2014 to June 2020, as an intense period of uncertainty in Iran. In other words, in this study, the markets were investigated in different sub-periods. Also, the Segmented Regression was performed to estimate the impact of sanctions and the Covid-19 pandemic on the co-movements of financial markets in Iran. The results showed that the oil price had a low co-movement with the other three markets, i.e. stock exchange, exchange rate, and gold markets. Thus, the oil market can be a suitable alternative for risk aversion investors. Meanwhile, the oil market could also act as a source of finance for the government during the sanctions period. That possibly explains the recent decision by the Iranian government to use the oil market to finance its budget deficit. Between the exchange rate and gold price, the gold price was identified as the leading variable. While the exchange rate and gold price did not show a significant co-movement in stable conditions, they did show a significant co-movement in unstable conditions, as in times of sanctions or during a global pandemic and thus influenced the investors’ portfolio risk. This result is important from a policy-making perspective. Based on this result, the policymakers can, especially during crises and unstable conditions, control the gold market and make it more stable by managing the foreign exchange market.

Appraising the oil–stock nexus during the COVID-19 pandemic shock: a panel threshold analysis

“…The relative higher exposure to oil-user industries leads to the negative exposure of these sectors to oil price risk. This is in line with the study of Samadi et al ( 2021 ) for Iran, where they argued that the period COVID-19 pandemic outbreak created uncertainty and more confusion among investor.…”

Infectious disease, human capital, and the BRICS economy in the time of COVID-19

“…The pandemic has affected the manufacturing and the services sector, particularly the education, health, hotels, real estate, hospitality, tours and travel, media, IT, retails, banking sector [11] . As the pandemic spreads and the number cases increases day by day, its negative effects on the world economy are eventually becoming much more evident [30] . The COVID-19 outbreak has affected nations enormously, mainly the nationwide lockdowns that have brought the social and economic life to a virtual standstill [11] .…”

The Impacts of the Infectious Disease Epidemic on the Permanent Volatility of Precious Metal and Crude Oil Futures Markets: A Long-Term Perspective

“…e outbreak of COVID-19 has caused huge losses in the global real economy and financial markets, especially in the commodity futures markets due to its direct impacts on both the demand and supply chain of commodities [1][2][3][4][5][6][7][8][9][10][11][12][13][14][15][16][17]. Crude oil markets are hit the hardest for the collapse in travelling and massive plant shutdowns arising from mitigation measures [7,11,14,16,[18][19][20][21].…”